The Effect Of Covid-19 On The Financial Regulatory Response

It has been seen that regulatory authorities have not taken seriously the problems related to climate change. However, if you take a closer look, you will find that climate change is a major factor of European and national regulators. In some fields, regulatory action related to climate change has not been taken on time.

Central banks located worldwide have taken necessary steps to offer the required financial assistance to the economy. Active measures have attracted media attention, and on the other hand, the required authorities have also initiated necessary steps to ease the regulatory process on different banks. Speaking about climate change

1. The consultation period for the FCA’s proposals has been extended to October from May 2020.
2. The Biennial Exploratory Scenario on the financial risks may be postponed. The Bank will issue the final BES scenarios in this yea. Besides, the results of the exercise will be published in the year 2021.
3. Jointly, CFRF- Climate Financial Risk Forum and PRA-FCA will develop some guidance about integrating climate relates risks for business.

Climate change remains a long-term and major priority

A few months back, ESMA issued its Strategy on Sustainable Finance. It mentioned some major goals. These are achieving supervisory convergence among NCAs- National Competent Authorities (NCAs) for climate disclosure. Another goal is to assess the risks related to climate change to the financial system. Now let’s have a look at some other major points.

1. In April, the European Commission published the Renewed Sustainable Finance Strategy, which aims to offer a perfect policy tool to make sure the European financial system supports the business’s movement towards a better level of sustainability.
2. On the other hand, ESAs- the European Supervisory Authorities published on consultation. Under this, the participants of the financial market will publish some important facts on their websites.

Talking about the international level, the NGFS- Network for Greening the Financial System is committed to publishing the guidance documents on time.

Sustainable finance regulation’s future

Well, it can be said that climate change has not been discarded yet. On the other hand, various steps are being taken to tackle the COVID-19 as well as climate change. However, there is a massive difference between the climate crisis and COVID crisis. The financial impact related to COVID-19 is particularly driven by a sudden increase in the field of liquidity and credit risk. This is something that can be altered based on the lockdown duration. On the other hand, climate risk is very challenging to quantify as here, transition and physical risk are unprecedented.

Some major lessons for all the financial institutions

1. You need to keep executing the climate action plan required by the PRA.
2. Give importance to your business model as well as strategy. Make sure you are ready to deal with climate and sustainability risks.
3. Don’t miss your opportunity to understand the client’s post-COVID-19 strategy to deal with your physical and transition risks.

Don’t panic. With cooperation from business, international community, and finance, you can mitigate the risks.